The Time To Act Is NOW!!

This was the basis of a message I wrote in late December to my most valued clients. I am making this market information avaialble to everyone here.

Yesterday the National Association of Realtors announced the November 2009 “pending sales” results. These pending sales are the homes that went into contract in November and the numbers are recognized as a preview of the actual sales results that will be posted one or two months from now. November’s pending sales FELL 16% from those in October! This decline is largely attributed to buyers that were sitting on the fence while the extension of the First Time Buyer Tax Credit was in debate by the U.S. Congress. With the original credit due to expire Nov. 30th, 2009, only cash buyers could possibly enter a contract in November and be assured of closing by the credit’s expiration. The credit was extended in mid-month by the Congress (through April 2010 for contracts of sale with closings required by June 2010). Even though the period of indecision was just two weeks in November, pending sales declined by one sixth!

These numbers should trigger warning bells for sellers and buyers. There is a confluence of factors coming by the end of Q2 2010 that will definitely impact residential sales. The first is the end of the Home Buyer Tax Credit scheduled for April / June. The second is the termination of the purchase of mortgage-backed securities by the U.S. Government in late Q2. These purchases have suppressed mortgage rates for the past year. Once this program is terminated, rates should begin to rise. The third factor is the employment forecast which the Federal Reserve now expects to remain between 9.3% and 9.7% for all of 2010. And the final factor is the time that short-sales are taking at present where six months to price approval and seven month or longer escrows are becoming common.

My interpretation of these factors is that the normal “spring bump” in home sales will begin earlier and end sooner than normal. Savvy sellers will have their properties ready for market and priced to sell by the middle of February. The weeks between Valentine’s Day and April 30th will be more active than normal for properties priced below the $800,000 price ceiling of the Tax Credit, but properties at all price levels will see increased activity as we near the termination of the Treasury’s securities purchases and the rise in mortgage rates. If a two week period in November where the possibility of no Tax Credit shrinks the buyer pool by 16%, what will its termination bring to the market? Consider the “cash for clunkers” program which pulled forward car sales and led to sharp declines in sales after it’s expiration. I expect that May 2010 pending sales will be at least 25% below the April 2010 numbers!

If you are a seller, I cannot emphasize strongly enough that you should be ready to sell and on the market by the end of February even though the rainy season may not yet be done. You cannot afford to miss any potential buyers, especially if you have a property being sold as a short-sale. There will be little time for ”price improvements” as the window for selling will be shorter than normal. Strike while the iron is hot will be the mantra. Keep in mind that 25% of your potential buyers may evaporate after Q2.

If you are a buyer, while the market may stumble along a bumpy bottom for a few more months and prices may rise only minimally for awhile, an interest rate increase from 5% to 6% will increase your monthly payments by 12%. If you can qualify for the Tax Credit, it’s elimination only adds to your urgency. Lastly the predicted number of foreclosures that are “coming” remains elusive. It is my belief that we will NOT see the number of foreclosures that some predict and those that do occur will be slowly fed to the market since the banks can keep these properties in their assets at FULL VALUE until they are actually sold.